CANADA FX DEBT-C$ advances after Bank of Canada keeps hike bias

* Canada dollar stronger at C$0.9932 vs US$, or $1.0068
* Bank of Canada holds overnight rate at 1 pct, keeps hike
bias
* Obama rejects latest Republican fiscal proposal
* Bond prices mixed
By Solarina Ho
TORONTO, Dec 4 (Reuters) - The Canadian dollar strengthened
against the U.S. dollar on Tuesday after the Bank of Canada kept
interest rates on hold, but reiterated its view that it will
need to tighten policy over time.
The central bank held its overnight lending rate steady at 1
percent, as expected - the longest period of BoC inactivity
since the early 1950s. Investors were focused on the bank's
language for any indication that its intent to tighten monetary
policy had shifted.
Bank of Canada Governor Mark Carney, who recently said he
will take the reins at the Bank of England next July, has been
signaling a need to raise the main policy rate since April,
making Canada the only industrialized economy to lean toward a
rate increase.
Overnight index swaps, which trade based on expectations for
the central bank's key policy rate, showed that after the
announcement traders scaled back their small bets on a rate cut
in 2013.
"The Canadian dollar has had a certain amount of volatility
today ... most of it on the Bank of Canada guidance," said Jack
Spitz, managing director of foreign exchange at National Bank
Financial.
The Canadian dollar finished Tuesday's session at
C$0.9932 against the U.S. dollar, or $1.0068, compared with
C$0.9949, or $1.0051, at Monday's North American close.
Camilla Sutton, chief currency strategist at Scotiabank
noted the Canadian dollar has held back while other currencies
rallied, but could now strengthen over the next few weeks to
C$0.9750, or $1.0256.
"The Canadian dollar wasn't (rallying) as it was waiting for
the Bank of Canada risk to pass. Now that it's passed, this type
of steady-as-she-goes statement opens up the potential for
Canadian dollar strength," Sutton said.
Canada's dollar finished the day outperforming most major
currencies, including the euro.
The currency firmed briefly to a session high of C$0.9915,
or $1.0086 after U.S. President Barack Obama said in a
television interview the Republicans' proposed fiscal cliff plan
was still "out of balance."
Obama rejected the proposal for the fiscal crisis and said
any deal must include a rise in income tax rates on the
wealthiest Americans.
Analysts warn that another recession will hit if U.S.
lawmakers do not come to an agreement over how to deal with
C$600 billion in tax hikes and spending cuts that are set to
kick in early next year.
"It may take the 11th hour and 59th minute, but I do believe
a (U.S. fiscal) deal can be done. Now whether that deal holds
really remains to be seen," said Spitz.
The Canadian dollar has been trading within a narrow band
between C$0.9962 and C$0.9906 for the last week and a half and
only a resolution of the U.S. "fiscal cliff" or a decision by
Canada over key takeover deals will push the currency through
recent levels, he added.
A C$15.1 billion takeover of Nexen Inc by China's
state-owned CNOOC Ltd is on hold while the Canadian
government reviews the deal. Progress Energy Resources Corp
, a mid-size Canadian gas producer, and Malaysia's
Petronas are also waiting for Ottawa to greenlight
their C$5.2 billion ($5.2 billion) takeover.
Canadian bond prices rose across the curve. The two-year
bond rose half a Canadian cent to yield 1.059
percent, and the benchmark 10-year bond was up 1
Canadian cent to yield 1.698 percent.